The Finances of Buying a Woodway Home

The city of Woodway is one of our primary markets. Tucked away right below the city of Edmonds, Woodway offers some of the most attractive, well-designed real estate in the Greater Seattle area. In fact, it would not be inaccurate or misleading to describe the Woodway market as the “Mercer Island of the west side.” We all know about the stature of Mercer Island on the east side of Lake Washington; we’ve actually talked about this before on our blog. Mercer Island is among the more coveted markets on the east side, and for good reason: the city boasts a high median home value, due in part to the fact that many of Mercer Island’s homes enjoy fantastic lake views. If we look closely, we can see that Woodway and Mercer Island have several key things in common. Many homes in Woodway offer superb views of Puget Sound, and the city has a comparable median home value.

In this post, we’re going to dive into the financial demands of a typical Woodway home. The phrase “typical Woodway home” is actually a bit misleading, because the homes in Woodway tend to offer much more than what most buyers expect. But, for the purposes of this article, we will just use this phrase in a strictly statistical sense. We will look at the finances involved with purchasing a median value Woodway home with a 20% down payment. Let’s look at the numbers.

20% Down Payment on a Median Value Home in Woodway

As of December, 2019, the median home value in Woodway is an impressive $1,485,900, according to Zillow. That’s more than twice the current median value in the city of Seattle! Woodway is clearly a select market. If a median value Woodway home were to suddenly come on the market, and a buyer planned to put down 20%, what amount would they need to come up with? They’d need to come up with $297,180. That’s hardly a small sum of money! Fortunately, the median household income in the city of Woodway is quite high. Of course, many buyers in the Woodway market originate from outside of the city limits, but for the purposes of this article we will just assume our hypothetical buyer is homegrown from Woodway. Currently, the median household income in Woodway is about $160,000 (rounded up).

If we assume that our buyer has a median household income, and derives his or her income from a single source, then we can calculate that his after tax income is about $9,900. This means that our buyer earns about $118,800 on a yearly basis after taxes. If we assume that our buyer can save 33% of his or her after tax income, then we can calculate that our buyer can have the down payment amount saved up in a bit less than 8 years. Mind you, this means saving 33% consistently for this entire period of nearly 8 years. That would take an extremely dedicated, conscientious and hardworking person. Of course, it’s very possible for someone to achieve, but we can’t downplay the difficulty level involved with this feat. Once the down payment of $297,180 is placed, what sort of monthly payment obligation would our buyer be looking at? After obtaining a so-called “jumbo loan,” our buyer would be looking at a monthly payment of about $7,246. That’s assuming our standard purchase situation involving a 4% interest rate on a 30 year fixed-rate mortgage loan; property taxes and homeowner’s insurance are included.

Concluding Thoughts

There are a few things we can take away from this. For one, it’s unlikely that a buyer will be able to afford a mortgage loan on a median value home with a 20% down payment and a median Woodway household income. With a household income of $160,000, it will be difficult for a buyer to service the mortgage loan, other costs associated with the home, and other necessities. With the mortgage loan and other fixed costs, such as property taxes, our hypothetical Woodway buyer is left with less than $3,000 per month after taxes. That’s going to test the budgeting capabilities of our buyer pretty severely, particularly when we consider the fact that a more expensive home typically carries greater maintenance and repair costs. Maintaining a home which is roughly $1.5 million is going to be expensive. Our hypothetical buyer will likely need to have a very large sum of money in savings in order to guarantee that the loan and other obligations can be managed properly.

Another thing we can take away is that this buying scenario is not very likely to occur in the real world. One reason for this is because the monthly payment obligations associated with a 20% down payment are so large. A fixed monthly payment of over $7,000 is quite large. Imagine a situation in which our hypothetical buyer suddenly faces an unexpected financial setback, such as a job loss. Whatever savings our buyer may have would rapidly be depleted given a monthly payment of such a large amount. Even though coming up with the funds would be difficult, we’re likely to see buying scenarios in Woodway which involve larger down payment sizes. A down payment of 50%, for instance, would provide a much more reasonable monthly payment obligation for a buyer. Now, this would involve a lot of saving, or perhaps a large amount of gift money, but not too many buyers are going to be comfortable with a monthly payment north of $7,000. Perhaps a monthly payment of this size might be doable for a buyer with a much larger annual income, but an annual income of $160,000 is likely too small.

Image credit: Bill Wilson